Here's How I'm Trading Viking Therapeutics as the Stock Takes a Hit
Viking reported great data for its obesity pill, but the stock is down sharply.
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Market action is choppy on Monday morning, with big-cap technology lagging and small-caps leading. Breadth is positive due to the small stock outperformance, but the new 12-month lows outpace the new 12-month highs.
Market players are contemplating their positioning in front of election day and what is likely to be a very emotional outcome, regardless of who wins. The big danger is a very close election with no clear winner.
I’m staying focused on my individual stocks and managing them closely.
I'm watching Hims & Hers Health HIMS very closely in front of its earnings report after the close on Monday. I expect strong numbers, but the key will be the future of its compounding of obesity drugs. I think the name has potential for some big swings on the results, and I’m looking to trade it.
Another obesity-related stock on my radar is Viking Therapeutics VKTX. On Sunday night, the company announced very strong data for its obesity pill. It was a small study, and there was an 8.2% weight loss in 28 days with limited side effects. That is best-in-class data, and analysts have made very positive comments. Oppenheimer raised its price target on the stock to $164 from $138.
So why is the stock trading down about 8% after blasting higher in the pre-market?Part of the reason is that there is a "sell the news" reaction. This stock is heavily owned by retail investors who have been anticipating outstanding news for quite a while. Many were looking to sell into strength, and when the stock reversed lower, it caused some concern that maybe there was something negative here that they were unaware of.
Another reason the stock is down is because there are active bears that believe that the major competitors, especially Eli Lilly LLY and Novo Nordisk NVO, will develop drugs that will be nearly as good over time. The obesity market is getting very crowded, and Viking needs to make a deal with a major player to commercialize its success.
My view is that the limited side effects are what differentiates Viking, and a company like Merck MRK might be be willing to pay up to join this huge market. It may not happen for a while, and that will weigh on the stock.
I hold a core longer-term position in VKTX, and I’m actively trading around it. I’ve flipped shares once so far Monday and am now building another position with the stock down around 8%. I’ll continue to make a series of small buys down to the 50-day simple moving average at around $64.50, but I don’t think it will get that low.
I’ll flip some shares into a bounce and may hold some for the longer term, depending on the action. I’m afraid the election may be a problem for speculative biotechnology if Trump is not a clear winner.
This is a trading market right now and not a time to build larger long-term positions. Once we are past the election, we can start using longer time frames.
At the time of publication, Rev Shark was long HIMS and VKTX.
